Paramount Investors Ready New Complaint in Big Film Slate Lawsuit (Updated)

Updated: A judge was set to toss some of the claims that Melrose 2 financiers was alleging over the money behind "Transformers" and other Paramount films. Now, Melrose 2 says the lawsuit is about to be expanded.
Paramount Pictures

Investors are still fighting Paramount Pictures in a massive lawsuit that alleges the studio's Melrose 2 film slate has not seen a dollar of profit from its $375 million investment despite the films bringing in $7 billion in revenue. Paramount allegedly underreported millions of dollars in revenue on the slate, which includes such hits as Mission: Impossible 3, Blades of Glory and the Transformers series.

This week, the judge tentatively agreed to toss investors' claims of fraud, breach of the implied covenant of good faith and fair dealing and unfair competition, seemingly leaving the Melrose Investors mainly fighting that Paramount has breached a contract.

But the Melrose 2 investors say they decided not to fight Paramount's demurrer in favor of filing an amended complaint that would supplement and expand its original claims. Both parties have stipulated that the new complaint will be filed before October 4.

In the tentative decision, Judge Michael Linfield indicated a willingness to toss certain claims for being duplicative.

For instance, in the lawsuit filed in November, the investors alleged a breach of good faith and fair dealing. But under New York law, which the California judge is applying per the contract, such a claim only stands up when facts are alleged that distinguish it from a separate breach-of-contract cause of action.

In this instance, the judge was leaning towards agreeing with Paramount that the investors' claims for breach of good faith and fair dealing  -- like Paramount allegedly paying sister company MTV as a third-party participant for Nacho Libre and Charlotte's Web -- relied too heavily on the same alleged acts for breach of contract.

In Melrose 2's amended complaint, this will likely be one issue that has to be taken care of.

That same defect put the investors fraud allegations in jeopardy. The investors claimed that Paramount "made intentional errors" on films, "concealed the existence" of discounts and payments from vendors, “misrepresented the production costs" of films and "misrepresented the net receipts."

In the tentative decision, the judge noted, "These allegations are no different than the allegations underlying plaintiff’s breach-of-contract claim, and plaintiff has alleged that each of these duties are contractual obligations governed by the agreement."

The investors may need to support their fraud claims by showing non-contractual misrepresentations plus asserting non-contractual damages, something else the judge noted that the investors hadn't provided.

One cause of action might be beyond saving. Since the judge is applying New York law, per the contract, he notes that California law doesn't allow an allegation for unfair competition when a dispute is governed by another state’s law.

A hearing that was previously set for July 19 looks to be off. But new information in this case could be forthcoming soon.

Paramount had previously described the lawsuit as "filled with hyperbole that ignores the true facts."


Twitter: @eriqgardner